One Thing & Another

Notes From My Journal: The Soothing Power of Making Music

About 55 years ago, I won second place in a solo contest for the French horn. I played a tune called Mighty Major. I got back into it about five years ago and then dropped it. I’m back into it again… and I’m wondering why I stopped. It is thoroughly enjoyable. It may be the only thing that gets me completely away from my head. I’ve been trying to achieve a bit more equilibrium in my life through meditation. But it’s hard for me. Playing this difficult brass instrument is faster and, at least for the time being, more satisfying. I am fully absorbed while doing it, and calm and happy with myself when I’m done.

It’s interesting…

Today’s Word: lagniappe (noun)

Lagniappe (LAN-yap or lan-YAP) is a small gift given by a merchant to a customer who makes a purchase. It may also refer to a bonus or unexpected benefit. As used by the freelance travel writer Jill Schensul in an article in The Record: “Lagniappe – the unexpected surprises, the extras – are one of the reasons I love New Orleans…. I live, and travel, for the unexpected surprise. I may get lost, but there’s usually an unexpected treat in that unplanned detour.”

Interesting Fact

55.1% of all US prisoners are incarcerated for drug offenses.

From My “Work-in-Progress” Basket: An Unavoidable Hazard of Success

If you’re smart, hardworking and persistent, you’ve got what it takes to be successful at any career you choose. But as you climb the ladder, you’re likely to face a problem they don’t talk about in business schools: too many attractive opportunities.

For 90+% of the population, this is a problem that will never arise. But you – you are in the top 10%. And the farther you travel down the road of success, the more opportunities will come your way.

I’ve heard this complaint from good people I’ve mentored for years. Just recently, GR, an up-and-coming copywriter, put it this way:

As one becomes successful, it seems more and more opportunities present themselves. It’s tempting to want to go after every single one of them.

So how do you spot the opportunities that are right for you?

Or, how do you decide which ones to say “no” to and which ones to place your bets on?

Here’s a quick answer, the answer I gave to him…

I don’t think there is a failsafe strategy for selecting and rejecting career opportunities.

If you are a thinking person, you will recognize in every opportunity a complex assortment of costs, risks, and benefits. The most obvious of these will be financial. But there are emotional, intellectual, political, and social costs, risks, and benefits too.

If you did a matrix that included all of these variables, it would quickly become very difficult to read. And that’s one reason smart people like GR have trouble deciding which opportunities to take and which to reject.

But you can un-complicate the decision-making process by identifying your priorities. Here is one way to do that:

Size matters

The first and perhaps most important consideration is the size of the opportunity. By that I mean how much the opportunity can advance your career.

If the financial benefit is modest (e.g., a chance to make a few hundred or even a few thousand dollars) in your free time, it’s usually best to decline. Why? Because you’d be better off using that time to find bigger opportunities, opportunities to add tens or hundreds of thousands of dollars to your net worth.

If the financial benefit is big but short-term (e.g., a one-time chance to make an extra 10 or 20 thousand dollars), it’s also best to decline. Your free time is valuable. You want to invest it in situations that have a long life so that the benefit can compound, just like money in an investment account.

As does duration

That eliminates all but one sort of opportunity: the chance to make a lot of money indefinitely or at least over many years. These are almost always relationship opportunities – opportunities to build mutually advantageous relationships that could continue to grow for the rest of your career.

So ask yourself: Is this a transactional deal or a relationship deal? Transactional deals can be very attractive because they can result in nice, big payouts in a short span of time. But you have to keep in mind that transactional activities do not compound, and compounding – as Einstein is reported to have said – is the E=MC2 of building wealth.

The downside

Just because the opportunity is big and long-term doesn’t mean you should take it. You must also analyze the costs and risks before you make a decision.

By costs I mean any financial investment you might be asked to make and the cost in terms of your time. The financial investment is relatively easy to assess. Just ask yourself if you would be comfortable losing any part of your investment. If you would be unhappy with such a result, say no.

If you’re okay with any financial investment, you have to determine whether your time is worth the potential benefit. And there is a little trick some people use to figure out exactly how valuable their time is.

Figure out how much you make right now on a per-hour basis. (Your annual compensation, including bonuses, fees, royalties, and dividends) Then divide that by the number of hours that you work. Let’s say that number is $100. Take the number of hours you’ve determined the opportunity will cost you and divide it into the financial benefit you expect to get from it (again on a yearly basis). If it is less than $200 (effectively doubling your current hourly value), say no.

Making decisions about whether to take or reject opportunities is not as simple as tossing a coin. But it doesn’t have to be crazy difficult. You don’t have to calculate every single variable. The main considerations are very few:

How large is the benefit?

How long will it last?

What are the costs – both financial but also in terms of time?

What are the risks – and am I comfortable taking them?

Only you can make the final decision about whether or not to pursue any opportunity that comes your way. But by evaluating each opportunity in this way, you’ll make more decisions more quickly and with greater confidence.

Recommended Reading

What makes a business valuable? Roy Furr, a young man whose career I’ve been following for some time, identifies the key ingredients in this essay…

What makes a business valuable?

It’s not necessarily what you think.

Ask an accountant, and they’d tell you it’s in the real property and the intellectual property. That is, real estate, productive assets (e.g. machines), copyrights, trademarks, and patents. As well as any unique products and services the business offers.

And that’s all true. To a degree.

But it’s not the real source of future value in a business.

Real estate has captive value. Unless you’re a landlord, you’re not generating income from the value you have in it. And to get value out, you’ve gotta sell. Which usually means movin’ out.

Productive assets such as machines, vehicles, computers, and more can be valuable in terms of creating and delivering products and services. But they’re called “depreciating assets” for a reason. The longer you have them, the less value they have. (I have an old DVD duplicator and printer that’s worth about $0 today — but was $500 refurbished when I bought it and once worth $2,000 or so new.)

Intellectual property can have some value. At least for a time. Your copyrights, trademarks, and patents offer minimal protection for competitive advantages. But they are fickle protection. Copyright protects against direct copying. But indirect “borrowing” and “inspiration” are impossible to stop and a bigger threat. A trademark only matters as long as the brand behind it matters. And patents are easily innovated upon, by experts at changing just enough to lock down the “new and improved” version of what you’ve been selling.

Your products and services can be somewhat of an advantage and value center. But again, they tend to be easily ripped-off, or at least innovated upon until you’re looking like yesterday’s news.

So… What is valuable in a business?

The biggest value in a business is in your relationship and reputation with your past customers…

If you have a good reputation and relationship with your past customers, they’re predisposed to doing more business with you.

Assuming you have a way to reach out to make an offer (e.g. they’re on an email or postal mailing list), your customer relationships can be a source of instant cash flow and easily-accessible value.

This is why it’s often said that it cost 10X as much to get a new customer as to do more business with a past customer.

Or, in other words, you’ll spend 1/10th as much to do business with your past customers, because of your reputation and relationship.

This is why it pays to do good business. That is, business that’s fair, ethical, and is based on providing value to your customer.

It’s a source of value in your business to actually serve your customers at the highest level. Because it will predispose them to coming back for more.

The more you do so, the bigger long-term impact it will make on your cash flow, profitability, and the overall value of your business.

The next biggest source of value in your business is your relationship and reputation with your prospects…

And by prospects, I mean the broader market as a whole, as well as any prospects who’ve expressed interest (e.g. joined your email list but not bought).

The more goodwill you develop with the members of your market who have not yet done business with you, the more likely it is that they’ll turn into good customers into the future.

This includes doing things like value-first marketing, being a market leader, and actually helping your prospects make the right buying decision for them even if it means they buy from a competitor.

Life is long. People tend to buy from a lot of companies in a niche. Sometimes, in rapid-fire. Other times, with years between transactions.

Do your best to foster a great reputation with your market through time, and to position yourself as a preeminent authority in the niche.

And when someone comes to you, interested in what you offer, treat them as if they are a high-value customer long before they ever spend a cent.

It won’t always pay off immediately. But in the long run and at scale, it’s the single-best approach to running your business.

The third big source of value in your business is your marketing…

Let me tell you something that a lot of business owners hate.

How good you do what it is you do — create your product, or deliver your service — doesn’t matter nearly as much as how well you sell it.

You can be the very best butcher, or baker, or candlestick maker in all of the land. And quality does matter — especially when it comes to building that reputation with past customers.

But it’s far easier to build your butchery, bakery, and candlestick makery with better sales and marketing than with a better product. So it goes for all products and services.

You have to be able to get a prospect’s attention, build interest in what it is you offer, stimulate their desire to have your solution and only your solution, and get them to act.

If you are better at that than your competitors — which is best measured in being able to sustainably spend more than all of your competitors to get each new customer — you will win.

But again — don’t skimp on quality and think better selling ability will get you there. If you offer an inferior product or service, better marketing and selling will only hasten your demise. Rather, focus on combining quality marketing with a product or service that delivers. And that will make you unstoppable.

Everything else is an added bonus in determining the value of a business…

If you don’t have a great relationship with your past customers and your market, and you don’t have great marketing, most other assets will quickly lose their value.

But with the above, all other assets are multipliers and leverage points to only increase your value.

A quick story, as a parting warning and illustration of this lesson…

I remember a guy involved with local entrepreneurship circles. He was into the investment market, so I tried to understand his startup company. He was building software for options traders. It was unique. It was proprietary. It was the next best thing since sliced bread.

“But does anybody want it?” I didn’t ask directly. I didn’t want to sound rude. But I thought, in my gut, that he didn’t really know what people actually wanted in the space.

He spent two years building the software. On paper, the time invested in building a proprietary system for a cash-rich market made the business look valuable.

I thought it was smoke and mirrors. Eventually, after years of sinking money into an untested platform, he tried to take it to market.

What is the sound of a thousand crickets chirping?

That’s about the fanfare that he got. He didn’t have a relationship with past customers. He didn’t have a leadership relationship with the market. And he didn’t have a clear understanding of the customer’s desires, a crucial first-step to making the sale.

Eventually, his backers pulled the plug. The business doesn’t exist today.

I can’t help but wonder though what he could’ve done if he’d focused instead on developing the three sources of value above…